No Depression!

We have been seeing price action that seems to be attempting to prove grain markets have “real value” at current levels and may in fact be too cheap. This is the theory that must be embraced—UNLESS you subscribe to the complete collapse of the financial system, the inability of gov’t action to stem the slide, and a full-scale slide into a Depression. Anything is possible, but if you wish to be bearish grains, realize that is also a statement about impending complete collapse of the global financial system. I believe the Fed/US Treasury will lead the way and be successful in returning liquidity and confidence. I also believe that if this is true, then there must be at least a period of time where investors, when viewing the recent activity from the perspective of a successful result, will see recent Fed activities as extremely inflationary. This could have a dramatic weakening impact on the US $ and a very positive influence to $-priced commodities. Users need to respect this upside risk as much as they fear/respect the move into a Depression era. If this sounds crazy to you, remember again that it was just several weeks/few months ago that people were most worried about hyperinflation…now it is Depression…90 days from now…?

It is possible to have real and prolonged economic problems, but still remove short-term panic, which will lead to a much different price scenario for ag commodities than today's fear-based, Depression-based rhetoric suggests. If the gov't action is successful at instilling confidence in the financial markets during the next few/several weeks, and I fully believe they will be, then the inflationary impact of all this gov't money infusion will be expressed through a weak US $. This will in turn drive up ag commodities. How much can be in debate, but appreciable gains from current depressed prices is very possible.
Published Wednesday, October 08, 2008 9:00 AM
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